Pinnacle is a "third-party administrator" (TPA), or independent benefit plan administrator, has been managing benefit plans for about 800 small groups in California and Arizona.

The SHOP contract calls for Pinnacle to run an exchange, or Web-based health insurance supermarket, that could eventually help as many as 375,000 California small businesses shop for health coverage.

The California SHOP exchange staff will choose the health plans to be offered, manage exchange-plan relationships, and lead marketing efforts, officials said.

Pinnacle will handle eligibility, enrollment, marketing and fulfillment services, as well as agent and general agent sales management, financial management and small business call center services.

Nuts, bolts and commissionsThe Patient Protection and Affordable Care Act of 2010 (PPACA) requires the U.S. Department of Health and Human Services (HHS) to set up exchanges for individuals and small groups by Oct. 1. California is starting its own, state-based exchange.

California is using HHS PPACA funding to pay for the SHOP administration contract from now until the end of 2014, exchange officials said.

Starting in 2015, Covered California will use its own revenue to pay for the contract, officials said.

The exchange health plans, or "qualified health plans" (QHPs), in all states will have covered specified percentages of the actuarial value of a standardized essential health benefits (EHB) package.

In California, the QHPs will also have offer standardized sets of cost-sharing features, such as deductibles, co-payments and coinsurance rates.

Managers of most exchanges in most states have said that they will have SHOP exchange insurers contract directly with brokers, and that the insurers and the brokers will be responsible for negotiating commission rates and arranging for the payment of commissions.

California hopes to encourage employers to offer employees a "pick a carrier" plan, to give the employees a choice of health insurers and managed care companies.

Covered California officials have said that the SHOP will take care of paying brokers "competitive" small-group commissions. Officials have said that they believe that having the SHOP exchange pay the commissions will keep broker concerns about commission collections from hurting multi-carrier menu plan sales.

David Zanze, the president of Pinnacle, has written articles about topics such as self-insurance and PPACA reporting requirement for California Broker.